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China has approved a homegrown audio-video standard, Beijing press reported, a move that could challenge current DVD formats and pave the way for China to set new global industry standards.

The appproval for commercial use of the digital coding and decoding technology known as AVS would also save China more than one billion dollars in royalty fees, the China Daily said, citing the Ministry of Information.

The new standard could further add oil to the fire in the battle between two competing formats -- HD DVD and Blu-ray disc being developed by Japanese giants.

Both technologies are vying to become the next generation of audio-visual technology used in digital televisions, laser discs, digital video, video conferencing and 3G-based data services.

AVS, which is compatible with the HD DVD system, is expected to begin operating by the end of December in mobile television services.

The AVS standard has been also backed by the DVD Forum. The organization urges to promote and support the AVS standard as the next-generation DVD format, since it is based on the HD DVD spec. The new format is supposed to have the same disc structure as the HD DVD, using two bonded 0.6-mm-thick platters. But it will slightly modify the physical layer and will simplify the video application layer. The resulting China-only format would be incompatible with a HD DVD player, at least without modifications on both the circuitry and the optical pickup unit (OPU).

The AVS standard is compatible with MPEG-2 at the system level, and it involves Chinese proprietary IP in the audio/video-compression algorithm. Compared with the already proposed H.264, the biggest strength of AVS lies in its easy implementation. In addition, from the encoding perspective, the popular H.264 requires more than twice the computing power of MPEG-2.

The computing-power advantage that AVS offers arises from the granularity with which the scheme processes an image. H.264 processes an image using 4x4-pixel macro blocks for all applications, from big-screen high-definition TVs to small-screen mobile terminals such as cellular phones. AVS uses an 8x8-pixel macro block. The larger block does not adversely affect AVS performance in big-screen high-definition applications, but it greatly simplifies the coding algorithm, according to proponents of the technology. In addition, the 8x8 block avoids possible patent conflicts with H.264, the AVS group claims.

The Chinese report estimated that Chinese demand in the next decade could eventually range between 300 to 500 million AVS coding chips.

The announcement marks China's latest attempt to leverage its growing manufacturing might to dictate its own terms and free itself from royalty fees paid for patents held by European and US companies.

In 1999 China began experimenting with its own DVD standards, creating EVD, an effort that failed to take hold commercially due to legal wrangling between developers and manufacuturers.

Two years ago China tried to force foreign companies wanting to sell wireless computer (WiFi) equipment to support its proprietary and secret encryption standard called WAPI.

Beijing was forced to scrap its plans for the system when companies such as Intel threatened to stop selling their products in China.

For AVS to succeed the standard would have to be widely adopted. That may occur as it has been included in China's 11th five-year plan, meaning it will receive the full-backing of the government until 2010. Optimistically, China the AVS standard as a HD format could be established efore the Olympic games in Beijing in 2008.